“I don’t want to file bankruptcy”, says nearly every single potential and actual client I have counseled and represented for the past 23+ years, “but I’ve tried everything else and have no more choices.”

Trying all your other choices may seem like a good idea, but as I pointed out in my post on why you should not always wait to file bankruptcy, leaving bankruptcy as a last resort can be very expensive and damaging.

So why (I ask myself) is bankruptcy usually the last resort, instead of, let’s say, the first, or second (or third) choice?

Bankruptcy is a Legal Right

Before getting into the common reasons people give for avoiding bankruptcy, it is important to understand that as authorized by Article I, Section 8 of the United States Constitution, we have laws that provide for bankruptcy relief.

These laws exist to protect both those filing bankruptcy, as well as those who are owed money.

Why wouldn’t you avail yourself of a legal right?   We have many of them in this country.

  • You have the right to deduct home mortgage payments on your tax returns.
  • You have the right to collect unemployment when jobless.
  • And obviously many more.

Would you make using these tools a last resort when you needed them?   Not take a deduction on your taxes for your children this year?

Of course not.

So why is bankruptcy treated with such avoidance and fear?

Bankruptcy Will Ruin My Credit

This is generally not true.

Most people who consider filing bankruptcy have pretty low credit scores by the time they get around to contemplating bankruptcy, and if the scores aren’t low already, they will be soon by virtue of defaults, judgments, etc.

While it is true that a bankruptcy filing can be reported on your credit report for up to 10 years from the date the case is filed, that does not equate with your credit being ruined.

In fact, bankruptcy will allow you to start rebuilding your credit much sooner than if you don’t file.  This is particularly true in Chapter 7 cases.

See my post on how bankruptcy can actually cause credit scores to increase

Many worry that they won’t be able to rent an apartment, get a home loan or buy a car after a bankruptcy.

That’s just not true.  It may be true temporarily, but again, most people in need of bankruptcy will already have difficulty accomplishing these things.

Bankruptcy provides the ability to recover much more quickly.

I Will Lose My Home or Other Assets if I File Bankruptcy

Definitely not true in most cases.

As my post on what assets you can keep in bankruptcy explains, you can control whether you lose assets by properly valuing your assets and then choosing the correct bankruptcy chapter.  This requires the expertise of a qualified bankruptcy attorney, but in all my years of practice, I’ve never had a client lose any asset that they did not know going into the case that they were going to lose.

Embarrassment/Social Stigma/Guilt

This is a big one for most people.

Strangely, despite my having written about Thomas Jefferson’s bankruptcy filings and why you shouldn’t feel guilty for filing a bankruptcy, people still feel embarrassed about it.

Most of my clients genuinely feel bad that they aren’t able to pay their debts.

That’s a good thing, and I understand that.

But when you’re not able to pay, or have to sacrifice almost everything to make payments you’ll never complete in your lifetime, it’s not so good.

And if your debts are primarily credit card debt, are you really worried about the impact your bankruptcy is going to have on the profit margin of your credit card company?

I can’t tell you how to feel, but filing bankruptcy is a very responsible step towards dealing with your financial obligations.

And remember, the laws allow you to file bankruptcy.  The laws are there for a reason.

In all cases I have filed for clients the positives greatly outweigh the negatives.


Image Courtesy of Maximilian Goldmann